Financial Statement Analysis
Pre-Test Questions
Course Introduction
Financial Statement Analysis focuses on the techniques and frameworks used to evaluate a companys financial health and performance through its financial statements. Students will learn to interpret balance sheets, income statements, and cash flow statements to assess profitability, liquidity, solvency, and operational efficiency. The course emphasizes ratio analysis, trend analysis, and comparative analysis to inform decision-making for investors, creditors, and management. Real-world case studies are incorporated to apply analytical skills and to understand industry-specific reporting practices and potential red flags in financial disclosures.
Recommended Textbook Fraud Examination 5th Edition by W. Steve Albrecht
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Page 2
Chapter 1: The Nature of Fraud
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Q1) Which of the following would NOT be acceptable as fraud-related experience to satisfy the education requirements to apply for CFE certification?
A)auditor (internal or external)
B)investigator for law enforcement agency or private sector
C)experience in the Human Resources department of an organization
D)paralegal for a prosecuting attorney
Answer: C
Q2) The Anti-Kickback Act of 1986 intends to prevent:
A)bribery, by punishing perpetrators with up to 15 years in prison.
B)any scheme by a contractor to gain the business of a global entity.
C)the giving or receiving of any thing of value by a subcontractor to a prime contractor in contracts.
D)the custom of lobbyists to give gifts to influence laws regarding business transactions.
Answer: C
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Chapter 2: Who Commits Fraud and Why
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Q1) Greed,living beyond one's means and high bills all describe what type of fraud-related pressure?
A)Financial
B)Peer
C)Environmental
D)Work-Related
Answer: A
Q2) According to the Sarbanes-Oxley legislation,current changes to,or waivers of codes of ethics should be disclosed in:
A)Form 10-K.
B)Form 1120.
C)Form 8-K.
D)Form 10-Q.
Answer: C
Q3) Which of the following is NOT a common rationalization of fraud perpetrators?
A)The organization owes me
B)I'm only borrowing the money
C)No one will get hurt
D)No one will care
Answer: D
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Chapter 3: Fighting Fraud: an Overview
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Q1) Which of the following is true about legal action taken by organizations who are the victims of fraud?
A)Legal action is taken in fewer than half of frauds committed.
B)Legal criminal action is brought the the victim organization.
C)Civil action is a good way to get restitution.
D)Civil action sends a message to others not to commit fraud.
Answer: A
Q2) All of the following factors can be associated with high levels of fraud and detract from a positive work environment EXCEPT:
A)top management that does not pay attention to behavior of employees.
B)lack of recognition of job performance.
C)unrealistically low pay.
D)low turnover.
Answer: D
Q3) Research has shown that ______ detect most frauds.
A)Auditors
B)Customers
C)Vendors
D)Employees
Answer: D
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Chapter 4: Preventing Fraud
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Q1) Which of the following best describes an action that can cause a whistle-blowing system in place in the organization to fail?
A)The organization requires employees to report all suspicious activity.
B)The employee suspecting fraud reports directly to his/her supervisor's manager.
C)Management is slow to act on reports of suspected fraud.
D)An extensive code of ethics is in place and on file in order to answer employee inquiries.
Q2) Which method will result in biggest savings?
A)Fraud prevention--including EAP plans.
B)Fraud detection--including audit proactively, monitoring.
C)Investigation--including criminal prosecution.
D)Promotion--including raising rank or position.
Q3) What are the key attributes for a low-fraud environment?
A)Rules, control, and consequences.
B)Recognition, prosecution, and restitution.
C)Honesty, openness, and assistance.
D)Rules, consequences, and rewards.
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Chapter 5: Recognizing the Symptoms of Fraud
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Q1) Which of the following is an analytical fraud symptom?
A)Increase in past due accounts receivable
B)Significant increase or decrease in account balances
C)Lack of independent checks
D)Excessive voids or credits
Q2) Which of the following possible actions may discourage an employee to report suspected fraudulent activities?
A)Management promises no prosecution of the individual if guilty.
B)Corporate security's number is provided.
C)The number of the internal auditor is provided.
D)Corporate management stresses that any information provided will be kept confidential.
Q3) Recording an expense to conceal fraud involves making a fictitious journal entry.A faulty journal entry is an example of which fraud symptom?
A)Accounting anomaly
B)Internal control weakness
C)Unusual behavior
D)Analytical anomaly
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Chapter 6: Data-Driven Fraud Detection
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Q1) What is the primary drawback of the data-driven approach?
A)More expensive and time intensive than the traditional approach.
B)The time necessary to verify the large number of indicators identified.
C)Cannot highlight frauds while they are still small.
D)The investigator loses control of the fraud investigation process.
Q2) An appropriate red flag search to detect kickbacks or other fraud being committed by vendors would include:
A)invoices without valid purchase order.
B)employee and vendor telephone numbers are the same.
C)purchase orders with zero dollar amounts by buyer.
D)price increases greater than 20% for several consecutive years.
Q3) What is the primary advantage of the data-driven approach?
A)The investigator makes hypotheses and tests to see if each one holds true.
B)It is less expensive and time intensive than the traditional approach.
C)The investigator takes charge of the fraud investigation process.
D)Data-driven fraud detection is proactive in nature.
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Chapter 7: Investigating Theft Acts
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Q1) A divisional manager is suspected of adding ghost employees to the payroll.Which investigative method can most easily uncover this type of fraud?
A)Undercover operations
B)Theft
C)Concealment
D)Conversion
Q2) Undercover operations should be used only when:
A)large scale fraud is likely and other investigation methods fail.
B)controls are made so strict that opportunities to commit fraud are virtually impossible.
C)the investigation cannot be kept a secret.
D)there is a need to develop theories about what kind of fraud has occurred.
Q3) Which of the following is a benefit of creating a vulnerability chart?
A)It forces the investigators to explicitly consider all aspects of a fraud act.
B)It conveys a warning to all employees that fraud will not be tolerated.
C)It lists/coordinates the steps the investigator must take to uncover the perpetrator.
D)It shows management where controls are weak.
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Chapter 8: Investigating Concealment
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Q1) Which of the following is an alternative when original documents are too voluminous to permit careful examination?
A)A photocopy of the original document will suffice.
B)It will have to be excluded from usage as evidence.
C)A summary of its contents is acceptable.
D)There are no alternatives.The original has to be produced.
Q2) What is the most common way to obtain private documents (either oral or written)?
A)subpoena
B)search warrant
C)voluntary consent
D)audit
Q3) The least reliable method of obtaining documentary evidence is:
A)through traditional audits.
B)through computer-based queries
C)by using statistical techniques.
D)by accident.
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Chapter 9: Conversion Investigation Methods
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Q1) Refer Data Set 9-1.The income from unknown sources for years 2 and 3 respectively are:
A)$255,200; $300,200
B)$171,200; $307,200
C)$73,800; $179,800
D)$65,800; $47,800
Q2) Which of the following is NOT a form of database access?
A)Subscription-based fees apply before access is granted.
B)There is a per-use fee charged.
C)A set number of searches are free followed by a daily charge for use thereafter.
D)Unlimited free access to search is granted.
Q3) What do you mean by opting out?
A)Serving a written notice, denying the bank the right to sell personal information.
B)Withdrawing from a fraud being perpetrated by a colleague.
C)A bidder denying to pay the proceeds of the bid on becoming bankrupt
D)Whistle-blowing by a person who was part of a fraud earlier..
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11
Chapter 10: Inquiry Methods and Fraud Reports
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Q1) Use of all of the following methods will help an interviewer deal with difficult people,EXCEPT:
A)Disarm the interviewee using surprise
B)Change tactics
C)Make it hard to say "No"
D)Don't react
E)Try to reason
Q2) Identify the strongest response to a threatened ego.
A)Repression
B)Disapproval
C)Loss of Status
D)Anger
Q3) Which of the following is a facilitator of communication?
A)Threatened Egos
B)Trauma
C)Catharsis
D)Unconscious Behavior
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Chapter 11: Financial Statement Fraud
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Q1) Should nonfinancial indicators be used for assessing fraud risk? Why or why not?
A)No.A company's financial statement data need not always be consistent with its nonfinancial measures.
B)Yes.Management can more easily manipulate financial numbers but finds it harder to keep all the nonfinancial information consistent with the financial information.
C)No.Nonfinancial measures are indicative of physical assets alone.
D)Yes.Management attempts to commit fraud first show up in these indicators.Financial statement fraud is an attempt to cover up those attempts.
Q2) Which legislation led to the establishment of the Public Company Accounting Oversight Board?
A)Private Securities Litigation Reform Act
B)Sarbanes-Oxley Act
C)Gramm-Leach-Bliley Act
D)Glass-Steagall Act
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13
Chapter 12: Revenue- and Inventory-Related Financial
Statement Frauds
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Q1) When a company understates the cost of goods sold,what is the effect on the inventory turnover ratio?
A)The ratio might increase or decrease depending upon the amount by which it is understated.
B)The ratio will decrease.
C)No effect.
D)The ratio will increase.
Q2) Smart fraudsters will avoid financial statement fraud involving the overstatement of ____ because of the compounding effect from period to period.
A)revenue
B)accounts receivable
C)inventory
D)fixed assets
Q3) Which of the following is a symptom of potential inventory fraud?
A)an auditor observing a weakness in the inventory-receiving procedures
B)an auditor observing an override of an internal control
C)an auditor observing inadequate physical controls in the warehouse
D)an auditor observing the lack of authorization required for purchases of inventory under $1,000
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Chapter 13: Liability, asset, and Inadequate Disclosure
Frauds
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Q1) What is the effect on the Cost of Goods Sold account when the Inventory account is overstated?
A)It is overstated.
B)It is not affected.
C)It is increased disproportionately.
D)It is understated.
Q2) In liability fraud,liabilities are most often:
A)understated.
B)overstated.
C)recorded as assets.
D)recorded as expenses.
Q3) In case of deferred revenue liabilities,revenues should almost always be recorded as earned when:
A)the company receives an order for delivery of the product or the performance of a service.
B)the company is reasonably sure that the product can be developed and delivered.
C)the service is performed or the product is shipped.
D)the company receives cash for the service to be performed or the product to be delivered.
Page 15
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Chapter 14: Fraud Against Organizations
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Q1) What is known as the net asset value (NAV)?
A)The closing price of the securities that comprise a particular fund's portfolio plus the value of any uninvested cash that the fund manager maintains for the fund.
B)A concept used in finance and economics, defined as a rational and unbiased estimate of the potential market price of a good, service, or asset.
C)The value of an entity's assets less the value of its current liabilities at the end of the trading day.
D)The difference between the replacement cost of a fixed asset and its book value appearing on the balance sheet.
Q2) Which of the following occurs when an employee demands a payment from a vendor in order to make a decision in that vendor's favor?
A)Bribery
B)Larceny
C)Economic extortion
D)Illegal gratuity
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Chapter 15: Consumer Fraud
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Q1) Which of the following is a scam where perpetrators promise high pay for working on different projects like wooden calendars,paper towel holders,hair clips,or holiday decorations?
A)Product testing
B)Mail stuffing
C)Craft assembly
D)Skimming
Q2) TransUnion,Equifax,and Experian are examples of what type of agencies?
A)identity theft investigation agencies
B)credit reporting agencies
C)money transfer agencies
D)credit billing agencies
Q3) Which of the following is false regarding a Nigerian money offer scam?
A)States the need for urgent assistance.
B)Makes the victim feel like he or she is the only recipient of the special opportunity.
C)Involves someone trying to sell a piece of prime African real estate.
D)The e-mail is the promise of money and asks for help.
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Chapter 16: Bankruptcy, divorce, and Tax Fraud
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Q1) The Concealment of Assets,False Oaths and Claims,and Bribery section of the USC makes it a crime to "knowingly and fraudulently" do all of the following EXCEPT:
A)Receive property from the debtor after bankruptcy is filed
B)Conceal records or property
C)Transfer property to the debtor
D)Make a false statement
Q2) Which of the following is NOT involved in money laundering?
A)engaging in financial transactions to conceal the source of the funds involved
B)engaging in financial transactions to conceal the amount of the funds involved
C)engaging in financial transactions to conceal the identity of the funds involved
D)engaging in financial transactions to conceal the destination of the funds involved
Q3) Entering false financial information on bankruptcy petitions and schedules occurs in approximately what perscent of bankruptcy cases?
A)10 percent
B)30 percent
C)50 percent
D)70 percent
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Chapter 17: E-Commerce Fraud
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Q1) Which of the following activities would be the least practical for a fraud examiner?
A)gaining an understanding of the tools and methods perpetrators use in e-business fraud
B)gaining a working knowledge of computer networking systems
C)learning the strengths and weaknesses of Windows
D)getting to know each company employee's interactions with the systems
Q2) What is the term for when a hacker calls a targeted user posing as technical support and asks the victim to divulge the account information so that immediate steps can be taken to prevent data loss from the account?
A)social engineering
B)spoofing
C)data theft
D)customer impersonation
Q3) Which of the following is the first step in looking for e-business fraud?
A)Identify the frauds that can occur in the type of business being investigated.
B)Determine the symptoms of e-business fraud within the business being investigated.
C)Gain an understanding of the business being investigated.
D)Investigate any anomalies observed within the business being investigated.
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Chapter 18: Legal Follow-Up
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Q1) Who decides whether or no an expert witness is qualified to testify in a specific case?
A)the judge
B)the jury
C)the attorney who hires the expert
D)the opposing attorney during the deposition
Q2) Which of the following is a protection offered to defendants by the Fifth Amendment?
A)Protects against unreasonable searches.
B)Precludes a person from being tried twice for the same crime.
C)Grants the right to a speedy trial.
D)Allows the state to take a private party's property without just compensation.
Q3) In the discovery stage of a civil litigation,attorneys obtain information about the other side's case through all of the following means EXCEPT:
A)motion practice.
B)subpoenas.
C)depositions.
D)requests for admission.
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